ACV Auctions (ACVA)

Online used car auction platform ACV Auctions (NASDAQ:ACVA) met Wall Streets revenue expectations in Q3 CY2025, with sales up 16.5% year on year to $199.6 million. On the other hand, next quarter’s revenue guidance of $182 million was less impressive, coming in 4.9% below analysts’ estimates. Its GAAP loss of $0.14 per share was significantly below analysts’ consensus estimates.

Company Overview

Founded in 2014, ACV Auctions (NASDAQ:ACVA) is an online auction marketplace for car dealers and wholesalers to buy and sell used cars.

Marketplaces have existed for centuries. Where once it was a main street in a small town or a mall in the suburbs, sellers benefitted from proximity to one another because they could draw customers by offering convenience and selection. Today, a myriad of online marketplaces fulfill that same role, aggregating large customer bases, which attracts commission-paying sellers, generating flywheel scale effects that feed back into further customer acquisition.

Competitors offering marketplaces for used car sales include Carvana, (NYSE:CVNA), KAR Auction Services (NYSE:KAR), and private company Manheim.

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last three years, ACV Auctions grew its sales at an impressive 20.2% compounded annual growth rate. Its growth beat the average consumer internet company and shows its offerings resonate with customers.

This quarter, ACV Auctions’s year-on-year revenue growth was 16.5%, and its $199.6 million of revenue was in line with Wall Street’s estimates. Company management is currently guiding for a 14.1% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 20.2% over the next 12 months, similar to its three-year rate. This projection is admirable and implies the market is baking in success for its products and services.

Unit Growth

As an online marketplace, ACV Auctions generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.

Over the last two years, ACV Auctions’s marketplace units, a key performance metric for the company, increased by 19.2% annually to 218,065 in the latest quarter. This growth rate is among the fastest of any consumer internet business and indicates its offerings have significant traction.

In Q3, ACV Auctions added 19,711 marketplace units, leading to 9.9% year-on-year growth. The quarterly print was lower than its two-year result, suggesting its new initiatives aren’t accelerating unit growth just yet.

Revenue Per Unit

Average revenue per unit (ARPU) is a critical metric to track because it measures how much the company earns in transaction fees from each unit. ARPU also gives us unique insights into a user’s average order size and ACV Auctions’s take rate, or "cut", on each order.

ACV Auctions’s ARPU growth has been strong over the last two years, averaging 6.2%. Its ability to increase monetization while quickly growing its marketplace units reflects the strength of its platform, as its units continue to spend more each year.

This quarter, ACV Auctions’s ARPU clocked in at $915.14. It grew by 5.9% year on year, slower than its unit growth.

For online marketplaces like ACV Auctions, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include payment processing, hosting, and bandwidth fees in addition to the costs necessary to onboard buyers and sellers, such as identity verification.

ACV Auctions’s unit economics are far below other consumer internet companies, signaling it operates in a competitive market and must pay many third parties a slice of its sales to distribute its products and services. As you can see below, it averaged a 27.4% gross margin over the last two years. That means ACV Auctions paid its providers a lot of money ($72.60 for every $100 in revenue) to run its business.

ACV Auctions produced a 30.1% gross profit margin in Q3, up 2.4 percentage points year on year. ACV Auctions’s full-year margin has also been trending up over the past 12 months, increasing by 3.5 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as servers).

Consumer internet businesses like ACV Auctions grow from a combination of product virality, paid advertisement, and incentives (unlike enterprise software products, which are often sold by dedicated sales teams).

It’s very expensive for ACV Auctions to acquire new users as the company has spent 84% of its gross profit on sales and marketing expenses over the last year. This inefficiency indicates a highly competitive environment with little differentiation between ACV Auctions and its peers.

ACV Auctions has managed its cost base well over the last two years. It demonstrated solid profitability for a consumer internet business, producing an average EBITDA margin of 5.6%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, ACV Auctions’s EBITDA margin rose by 21.8 percentage points over the last few years, as its sales growth gave it immense operating leverage.

This quarter, ACV Auctions generated an EBITDA margin profit margin of 9.3%, up 2.8 percentage points year on year. The increase was encouraging, and because its EBITDA margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

In Q3, ACV Auctions reported EPS of negative $0.14, down from negative $0.10 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects ACV Auctions to improve its earnings losses. Analysts forecast its full-year EPS of negative $0.43 will advance to negative $0.10.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

ACV Auctions has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.1%, subpar for a consumer internet business.

Taking a step back, an encouraging sign is that ACV Auctions’s margin expanded by 29.5 percentage points over the last few years. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

ACV Auctions broke even from a free cash flow perspective in Q3. The company’s cash profitability regressed as it was 8 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

ACV Auctions is a well-capitalized company with $316 million of cash and $220 million of debt on its balance sheet. This $96.02 million net cash position is 6.2% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was good to see ACV Auctions increase its number of units this quarter. On the other hand, its full-year revenue guidance slightly missed and its full-year EBITDA guidance fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 13.4% to $7.05 immediately following the results.

Updated: December 4, 2025 at 9:35 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own ACV Auctions, you should also grasp the company’s longer-term business quality and valuation.

ACV Auctions isn’t a terrible business, but it isn’t one of our picks. Although its revenue growth was impressive over the last three years, it’s expected to deteriorate over the next 12 months and its sales and marketing spend is very high compared to other consumer internet businesses. And while the company’s rising cash profitability gives it more optionality, the downside is its gross margins make it extremely difficult to reach positive operating profits compared to other consumer internet businesses.

ACV Auctions’s EV/EBITDA ratio based on the next 12 months is 20.4x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $10.46 on the company (compared to the current share price of $7.90).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.